Tuesday, February 26, 2013

BAM! Volatility jumped 30% yesterday

We finally have a two sided market. It is kind of funny how markets will stair step there way higher and just fall off a cliff when they need a break. But it is healthy for a market to have corrections and consolidate moves. I don't think anyone was surprised that the market finally traded lower, what surprised most people is how fast it happened. You would think we would know this by now that markets always seem to fall much faster then they rise. I still don't think this changes anything with respect to the overall trend of the market. But I do however think that we could see some price consolidation for the next few weeks in the $147-$153 range.

With that being said I may look into trade ideas for some iron condors that may look attractive now that we finally have some volatility back in the market. I will also be searching for opportunities to add some more high yield covered call plays.

The first place I will be monitoring is the Dow 30 stocks for what you may call accidental high yielders. Here is the scan that I have set up and the different metrics I am looking at:

I already have positions in 5 of the top 10 on this list based on yield. DD or Dupont is the one looking like it has the most potential for me at the moment. But I will wait and see what the market does over the next few days. I would like the RSI reading to get a bit closer to 30 increasing not only the yield but my margin of safety with respect to price or cost basis. If we do get a bit more downside it should also increase volatility a bit, which means more premium I get to collect from the call I will sell against it. All these things lead to a higher probability of success.

If you don't have criteria for a trade, take a moment to think about things that make you compelled to take a position. Then put those things aside and think about what you know about options and how you can increase your edge over the other retail participants.

Please share your trade criteria with us below in the comments. It can be criteria for trades in general, or criteria for certain strategies.

Good Luck Trading!

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